Edward Jones in Markham, ON. Credit: Raysonho via Wikimedia Commons;
After a four-year investigation, regulators have reached a $17 million settlement with financial services firm Edward Jones & Co. resulting from an investigation into the broker-dealer’s supervision of customers paying front-load commissions for Class A mutual fund shares, the North American Securities Administrators Association (NASAA) announced on Wednesday.
The NASAA, which represents state securities regulators, “found gaps in Edward Jones’ supervisory procedures,” according to the NASAA. The association accused Edward Jones, which has 20,000 brokers, of improperly charging upfront commissions on mutual fund shares in cases where customers soon after moved those assets into investment advisory accounts that assess an annual fee. Edward Jones, for example, offered fee reductions for those customers for one or two years, but they were not sufficient to cover the full upfront commission that in some cases was as much as 5%.
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The investigation, which was led by a group of 14 state securities regulators who discovered gaps in the firm’s supervisory process, focused on Edward Jones’ supervision of customers moving from brokerage to advisory accounts, in light of the 2016 Labor Department Fiduciary Rule that would make investment advice to retirement accounts subject to a fiduciary standard.
Many customers had moved from brokerage to advisory accounts in light of the DOL’s now-defunct fiduciary rule, NASAA noted. The Obama-era fiduciary rule, which was intended to prevent financial advisers from steering clients to bad retirement investments, was met by strong opposition from brokerage firms. Several industry trade groups sued to overturn the rule, and in 2018 it was vacated by a federal appeals court.
“Today’s settlement shows once again that state securities regulators will take decisive action to protect investors,” said NASAA President and Administrator of the Division of Securities, Wisconsin Department of Financial Institutions, Leslie Van Buskirk. “State securities regulators continue to lead the effort to ensure that firms always have their customers’ best interest in mind.”
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As part of the settlement, Edward Jones will pay each of the 50 states, Washington, D.C., the U.S. Virgin Islands, and Puerto Rico an administrative fine of approximately $320,000. In evaluating the supervisory failures and determining the appropriate resolution, the states considered the positive performance of the investment advisory accounts as compared to the brokerage accounts.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
